RBI’s Rs 28,000 crore dividend to Modi government is no windfall to bridge fiscal deficit

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Updated: February 26, 2019 12:45:21 PM

The issue of transfer of dividends has been a bone of contention for long between the central bank and Modi government. The government had asked for an interim surplus transfer as well as the amount withheld by the RBI from surpluses of the previous two years.

RBI’s decision to transfer Rs 28,000 crore of its surplus reserves to the government in early interim dividend may come as a huge relief to the cash starved exchequer, but it certainly is not a windfall to help Finance Minister Arun Jaitley tide over a wide fiscal gap.

“In our view, the government has already budgeted the interim dividend of Rs 28,000 crore in its estimated budgeted dividend receipts and hence it should not impact the revised fiscal deficit of 3.4% any positively,’’ Anil Gupta, Vice President of Financial Sector Ratings, ICRA Ltd, told Financial Express Online.

The issue of transfer of dividends has been a bone of contention for long between the central bank and Modi government. The government had asked for an interim surplus transfer as well as the amount withheld by the RBI from surpluses of the previous two years. It is widely believed that this was one of the reason behind the sudden resignation by the then RBI Governor Urjit Patel.

While this transfer will put in much needed funds in the hands of the government in an election year, helping it spend on socio-economic welfare schemes, a closer analysis of the budget estimates show that it will not have any additional benefit in helping bridge the fiscal deficit.

The Modi government in its revised estimates for the current financial year 2018-19 has budgeted a total dividend of Rs 74,140 crore from the RBI, national banks and other financial institutions. Out of the total dividend, Rs 68,000 crore has been factored as dividend from the RBI, Economic Affairs Secretary Subhash Chandra Garg had said earlier.

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Since the government had already received Rs 40,000 crore from the RBI, Anil Gupta of ICRA said that this interim dividend of Rs 28,000 crore is what takes the revised estimates of the RBI dividend to Rs 68,000 crore.

The RBI decision was taken on the basis of a limited audit review and after applying the extant economic capital framework, it said in a statement. The central bank has also set up a committee under former governor Bimal Jalan to review RBI’s economic capital framework.

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